Policy —

Novell-SCO case finally heading to trial

US Bankruptcy Court Judge Kevin Gross has granted Novell's motion to lift SCO's bankruptcy stay so that Novell can continue with its lawsuit, through which the company aims to recover licensing royalties owed to it by SCO. The lawsuit will proceed in a Utah district court under Judge Dale A. Kimball, who ruled in August that Novell—and not SCO—is the rightful owner of the UNIX copyrights, and that Novell is entitled to 95 percent of the licensing revenue SCO collected on the SVRX UNIX copyrights.

SCO filed for Chapter 11 bankruptcy protection earlier this year after the company's value plummeted in the aftermath of Judge Kimball's ruling. A bench trial was scheduled to determine the portion of SCOSource royalties owed to Novell, but a bankruptcy stay temporarily halted the process. The stay was issued because the judge did not want to give Novell preferential treatment over other debtors. Novell filed a motion requesting that the court lift the stay and argued that allowing SCO to continue operating with its current resources would amount to a forced loan.

Judge Gross has lifted the stay so that the Utah district court can determine how much SCO owes Novell, but declined to allow the matter of establishing a constructive trust to be pursued further at this time. Judge Gross will likely address the constructive trust issue after Judge Kimball reveals how much SCO owes Novell.

"[R]elief from the automatic stay is granted for cause to allow Novell to proceed with the Lawsuit at the convenience of the District Court (as defined in the Memorandum Opinion) on the following issues: (1) the amount of the royalties to which Novell is entitled from certain SCOSource licenses that the District Court determined to be SVRX Licenses and any additional licenses that are determined to be SVRX Licenses; and (2) whether SCO had the authority to enter into licensing agreements with Microsoft Corporation and Sun Microsystems," Judge Gross wrote. "[T]he automatic stay is not lifted for a determination of the imposition of a constructive trust, an issue which this Court will adjudicate if and when necessary, following the District Court's decision in the Lawsuit."

Establishment of a constructive trust would block SCO from using its remaining financial resources so that Novell can collect as much of what it is owed as is possible. According to Novell's estimates, SCO owes it approximately $32 million. As SCO revealed in recent SEC filings, the company will not survive if forced to pay a significant portion of the sum estimated by Novell.